Refinery Outages Expected to Pump Gas Prices Higher

Technical troubles have shut down parts of three California refineries and cut statewide gasoline production by as much as 8%, which is expected to fuel higher pump prices after 12 weeks of declines.

The outages, at Bay Area refineries owned by Valero Energy Corp., Royal Dutch/Shell Group and Tesoro Petroleum Corp., will pressure retail prices and keep supplies short for the next few weeks -- just as consumers step up gasoline use for the Fourth of July holiday and summer travel, state officials and industry experts say.

“Sit down, strap in and hold on ... and hope that [the refineries] get restarted quickly or come up with other sources of gasoline,” said David Hackett, president of Stillwater Associates, a consulting firm that has done gasoline studies for the California Energy Commission.

The three refineries are in the Bay Area. Two -- Valero and Tesoro -- primarily serve independent dealers, such as those selling unbranded gasoline. Even so, industry experts say any significant disruption of refinery capacity increases competition for the remaining supply, putting upward pressure on prices.

Bay Area refineries typically send 24,500 barrels of gasoline a day to Southern California to help supplement the region’s production -- and those deliveries will be strained as long as refineries in Northern California are down.

Traders have reacted to the refinery glitches by sending gasoline prices up 16 cents a gallon -- to $1.165 -- since Friday on the so-called spot market, said Mark Mahoney, markets editor for the Oil Price Information Service.

“We could see some steep increases on the retail level soon.... It’s only a matter of time,” he said.

The federal Energy Information Administration’s gasoline price survey Monday showed a continued decline from the week before, with prices falling 3.6 cents to $1.696 in California. But industry experts say next week’s EIA survey for the state probably will show the first increase since pump prices peaked at $2.145 on March 17.

“This is not Armageddon, but it’s certainly a situation where we want to be watchful,” said Claudia Chandler, assistant executive director of the California Energy Commission.

Chandler said statewide supplies are running 5% to 8% short because of the refinery problems. “There will be plenty of supplies, but the price is going to be higher,” she said.

Last week, the state’s refineries produced about 950,000 barrels of gasoline a day, more than 13% below normal levels. In part, the drop-off reflects reduced production at Valero’s refinery in Benicia, Calif., which started having trouble in early May and expects production to be off by 55,000 barrels a day through June 16, the company said.

Tesoro said it took a boiler off line at its Martinez, Calif., refinery over the weekend for repairs that could take as long as 10 days. The move has cut the refinery’s gasoline output by as much as 20,000 barrels a day and diesel fuel production by up to 25,000 barrels a day, the company said.

A Shell spokesman confirmed that its Martinez plant also was partly down for maintenance, but would not elaborate. Mahoney of the Oil Price Information Service said there was a mechanical problem that could hobble the Shell refinery for as long as three weeks.